Saving for college from day one

GRAND FORKS, N.D. — The last thing on Christian Klenner’s mind is whether he has enough money to pay for college, but it’s one of the first things his parents thought about when he was born.

Christian, 13 months, already has a bank account that tops $1,500.

For their only child, Rob and Anita Klenner of Grand Forks, N.D., plan to grow that fund, so he’ll have the money he needs when he’s ready to go to college. They enrolled in Children FIRST, a program that encourages parents — and others who want to contribute — to start saving early.

“We started putting money away right when he was born,” said Rob. “You’ve got to start saving now so he’ll be debt-free when he finishes college.”

“I want him to have a good future,” Anita said. “It’s best to save now, so we don’t have a big chunk (to pay) at the end.”

“I want him to have his own account, so we don’t spend it,” she said.

For many parents, rising college costs present a serious concern. The average cost of a four-year education is about $22,000 per year, according to Sandy Botkin, professor of accounting and taxation at the University of Maryland. The average cost of tuition continues to rise at a rate of 4.5 percent at private schools and 8.3 percent at public schools.

Rob is putting $10 each week into Christian’s account, plus small, unexpected checks. He has no specific goal, he said. “I’m still trying to figure that out.”

At some point, Rob may need to increase that weekly contribution, he said.

The Klenners want Christian to avoid future stress, Rob said, especially since many people finish school with lots of debt. “I think everybody has some level of debt. It’s not a good thing. Trying to minimize it, in the long run, is important.”

As University of North Dakota graduates who earned master’s degrees, the couple did not incur massive debt but know many who did.

“Financial stress can take a toll,” Rob said. “If we can prevent it, why not?”

He hopes his son will receive scholarships, “but you don’t want to rely on what you don’t know,” and that his son will work, like he did, in high school and college to earn money.

“I don’t know where (tuition) will be in 18 years when he’s ready to go off to college.”

The projected cost of college in 2030 is $355,900 for four years at a private school and $102,900 for four years at a public university, according to Botkin.

The best thing parents can do to grow sufficient funds is to start saving early, said Jeff Hoplin, director of managed investment accounts at Alerus Financial in Grand Forks.

“That’s common advice, but it’s like someone said, the eighth wonder of the world is compound interest. It makes a huge difference if you start saving (when your child is) a baby instead of 16. That’s just the way arithmetic works. It’s really key.”

There are several ways to get started, he said. His recommendations:

• Open a separate account that you designate for a college fund and agree not to dip into it.

“The advantage of this account is that you maintain control of those dollars,” Hoplin said. But there “are no benefits tax-wise.”

• Open a “custodial” account — either a UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gift to Minors Act), to which “anyone can make an irrevocable gift for the child,” he said.

In North Dakota, the person who opens the account, the “custodian,” may invest “up to $14,000 each year without triggering any gift taxes,” he said. The custodian is anyone who wants to help the child, not just the parent. He or she may withdraw any amount from the account as long as it’s for the child’s benefit.

“When a child reaches the age of majority — 18 in North Dakota and Minnesota — the money is the child’s to do with whatever way he wants,” he said. “This causes parents some degree of angst.”

• Open a 529 account, an IRS option that allows gifts to a child’s college fund. North Dakota’s College SAVE program is an example.

“The donor controls the funds which grow tax deferred and are distributed tax-exempt as long as they are used for ‘qualifying college expenses,’ such as tuition, room and board, and books,” Hoplin said.

How much you invest in a college fund each month depends on the family budget, he said. “You don’t want to break your back and live in poverty.”

It also depends on “where parents think this child might go to school,” he said. “Then it’s arithmetic, working back from there.”

Between state colleges and Ivy League schools, “there can be a $30,000 to $40,000 difference” in annual costs, he said.

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